Reach: 13.09 million unique visitors in May, with 1.11 million daily visitors**

Weakness: Its foreign funding has raised questions

Launched in 1994; in Jun 2013 in India

Strengths: Global brand equity, large product portfolio in just one year in India and expanding. Offers free one-day delivery, cash-on-delivery option

Reach: 18.02 million unique visitors in May, with 1.27 million daily visitors**

Weakness: Stymied by Indian laws on FDI, which restrict Indian ops

* Source: Company ** Source: Comscore

***

What’s At Stake Here

If government allows FDI, Amazon will shift to inventory model and play with prices. Other players, like Wal-Mart, likely to enter the ring.

Flipkart, armed with $1 billion investment, is also likely to indulge in price play to survive in the market

Consumers will gain the most as prices expected to fall significantly in the war between the giants to attract customers

The sector may see huge consolidation as smaller players would be wiped out or acquired by the big fish

Entry of large offline retail players could add financial muscle to Indian challenge in the sector

***

The battle between the homegrown Bansal boys and the global giant with the surname Bezos has been simmering for a while. Ever since Bezos’s Amazon started selling products in India last June, its dramatic growth had turned the small but booming Indian e-retail market into a pressure cooker. In April, Sachin Bansal tweeted: “Am I the only one who is sick of start-up gurus, Indian VCs and US internet firms telling Indian start-ups what we can and can’t do?” Three months later, Bansal got what he wanted–$1 billion in funding—crucial fuel for an Indian firm to go for the Holy Grail in the internet shopping space.

Within hours of Flipkart’s announcement, Amazon’s country head Amit Agarwal got off an airplane from the US with a message from his boss—“A big ‘thank you’ to our customers in India—we’ve never seen anything like this”—and $2 billion to take on Flipkart and other players. The swords have been drawn for a Flipkart versus Amazon showdown on battleground India. In the last few months, the two giants have matched each other’s move, to give customers a better deal. Better prices and free one-day delivery, to count a few. In fact, the joke on Twitter is that Flipkart and Amazon will soon start a price war “so huge that it will one day lead to the customer getting Cash on Delivery!” Sure, there’s no comparison between the two companies on a global scale—Amazon has a global valuation of $148 billion against Flipkart’s $7 billion. Even so, the latter has been quietly building up scale in India over the last 18 months. Foreign fund investors have been backing it religiously despite its losses. Its valuation has left even India’s retail king Kishore Biyani’s Future Group behind. Flipkart wants to be a $100-billion firm like its role model, Chinese e-commerce behemoth Alibaba. But e-commerce in China is highly regulated, and foreign players are not allowed in.

“eBay strongly believes in the need for a calibrated approach to opening up e-commerce in India to FDI.”Latif Nathani, MD, eBay India

Amazon’s growth in India has been exponential too. In just 13 months, it has built scale that matches Flipkart’s efforts of seven years. It has more products (though less categories) than Flipkart, more than twice the number of sellers and is expected to hit $1 billion in turnover soon, a figure Flipkart crossed only recently. Amazon’s success in India has obviously been because of the nascent state of Indian online retail. While organised retail, according to retail consultancy Technopak, accounts for only 8 per cent of total retail in India, e-retail is just a minuscule 0.4 per cent worth $2.3 billion.

On an encouraging note, there is a visible change in consumer behaviour here as Indians, led by the affluent younger generation, are finally going online to buy everything—from cellphones, cameras to clothes, furniture and even grocery, helping establish this mode of shopping. In the last couple of years, online retailers have moved from single-digit to double-digit growth. “Personally, I have been a loyal Amazon.com customer for ages and also have deep respect for what Flipkart has achie­ved in a relatively short span,” says Deep Kalra, founder and CEO, makemytrip.com. “The Ind­­ian e-commerce market is huge and I don’t think it’s a question of either/or between these two companies.”

Actually, everyone recognises e-retail is now officially a goldmine. It is also a political landmine. Amazon, along with other global e-retailers, is lobbying with the BJP government to allow FDI in e-commerce in India. This move has been opposed by Indian merchants as well as by firms like Flipkart. It is a powerful domestic lobby. Many Indian brick-and-mortar retailers like Reliance and the Aditya Birla Group are entering the e-retail fray while the Future Group is also making yet another attempt to tap the online retail pie.

It helps Flipkart that the incumbent government is not fav­o­urably inclined towards FDI in multi-brand retail. Concerns have been raised about Flipkart being eventually “gobbled up” by Amazon. The latest bit of muscle-flexing by Amazon has brought forward the question of the “survival of the Indian challenge in online retail” as Flipkart readies itself to fight a company that has successfully belittled local players via its fully controlled inventory model. The only exception, as mentioned earlier, has been in China where homegrown Ali­baba controls 80 per cent of the Chinese market.

This remains, however, a fluid state of affairs. The UPA had last year floated a discussion paper on FDI in e-retail to garner public opinion. The issue has not died down even after the election thanks to hectic lobbying by global online retailers who have been applying cons­tant pressure on the government to open up this sector. That explains why PM Narendra Modi urged traders to “embrace technology”. Though opposed to FDI in retail, his government has been soft on the issue and is open to the idea in the “larger interest” as it is actively seeking FDI in other sectors. An inkling of its intentions showed in the budget when it allowed the manufacturing sector to sell its products on e-commerce platforms.

“Despite all the bells and whistles, most e-commerce websites are not much more than electronic catalogues.”Deep Kalra, Founder & CEO, Makemytrip

Sources reveal that an announcement on this was supposed to be made before the budget but the government pulled back at the last minute. Says a person close to the developments, “The government did not want to disturb its political flow by announcing something that many of its supporters are opposing, especially since the Delhi assembly elections are around the corner. Once that is done, it is possible that they will take a call on this.” The government, say sources, is also in the process of clearly defining e-commerce and its subset—e-retail—to prevent players from taking advantage of the ambiguities in the present laws.

This, say some analysts, stems from the funding of some e-retailers like Flipkart, which are almost entirely by foreign investment. According to reports, both Flipkart and Myn­tra have received notices from the enf­orcement directorate regarding this. This also probably explains why most e-retailers, inc­luding Flip­kart, follow a marketplace model where the company acts just as a platform for buyers and sellers, a model allowed for players with foreign investment. This is against an invent­ory-based model where the online players own the products and warehouses and sell them directly to buyers (here foreign investment is not allowed).

Most players in the Indian e-retail sector today operate on the former model, which Amazon follows in India, unlike in the US. Many of them, like Snap­deal, Jabong, Naaptol and Yebhi, have come to embrace the marketplace model. Flipkart too moved from a mass merchant model to a marketplace one in 2013, the year Amazon dropped anchor in India. The latter model accounts for 27 per cent of the US market, and over 90 per cent of China’s.

It’s an emotive issue with the BJP’s core constituency: the trader and shopkeeper community. Says Praveen Khandelwal, general secretary, Confederation of All-India Traders (CAIT), “If FDI is allowed, today it is just Amazon, tomorrow we will have others like Wal-Mart who will come in and capture the Indian market and consumers will move to these players at the cost of Indian traders.” As big Indian e-tailers will back these moves, it remains to be seen if the BJP will bite the bullet and open up the sector a few months down the line.

There’s the opposing view, of course. Some online players feel nothing is going to change. Says K. Vaitheeswaran, e-commerce consultant and founder, Indiaplaza, “It will make no difference in India as all the players are already here. It is not that if FDI is allowed, Amazon, Wal-Mart and eBay are going to take away 50 per cent of the retail market in India.” Retail analysts also feel the government’s stand on FDI is illogical. Says Arvind Singhal, head, Technopak, “The government’s stand on FDI is inexplicable. India needs capital and if foreign capital is allowed, it will create huge opportunity using e-commerce, front-end and benefit the entire ecosystem.”

So where does the Indian consumer stand in all this and what does she gain? For one, online retail has given her access to many products not available in smaller towns and a choice not readily available in physical retail. Most imp­ortantly, it has given her much better prices as e-retailers compete with each other to attract buyers. With two e-retail behemoths now fighting in the open, the deals and options will only get sweeter. As long as the fight lasts.

That is because Amazon India gets backing from Amazon Inc which has deep pockets and can sustain the fight longer. Though e-retail hasn’t tur­ned handsome profits even globally, Amazon Inc is supported by robust, profitable offline busines­ses. Flipkart, in contrast, has a presence only in online retail and depends entirely on foreign funds. Right now, it has investor confidence and the rope is being extended liberally, but at some point questions may be asked and the taps shut off.

“The money invested by Flipkart and Amazon shareholders will eventually wipe out the ‘me-too’ players.”Suchi Mukherjee, CEO & Founder, LimeRoad

The situation will also change if and when FDI is allowed and global e-retailers exercise their might and start working on an inventory model which gives them economies of scale and ability to play with prices, a strategy which always succeeds in a price-sensitive market like India. Big retailers like Amazon have also been known for predatory pricing where they discount prices to such an extent that the competition simply gives up and exits, leaving the field open for them to control prices. In a two-cornered fight in India, that is what most have to fear. Says Vaitheeswaran, “The deep discounting stops when one player wipes out others and starts raising prices.”

Globally, the silent arrival of Amazon with its range and reach can be a kiss of death. French Booksellers Union, which had been voicing concerns about Amazon’s practice of offering free shipping of discounted books, went to court and in 2007 got a verdict in their favour as the threshold of discounts is fixed under French law. Predatory pricing can only be proved post facto—if they kill competition and later jack up prices, says Prof Asis Zameer of the Fore School of Management. “I don’t think Amazon is a case of predatory pricing as it is more a case of volumes and more efficient supply chain management.”

Last month, German book publishers filed a complaint with the country’s anti-trust authority against Amazon, accusing it of violating competition laws. Amazon is in a similar tussle with Hachette Publishers in the US. As the German Publishers and Booksellers Association admitted in its complaint, it is “indispensable” for publishers to be listed on Amazon given its wide platform.

As of now, is bracing for a bruising battle that will shape the market of the future—the cont­estants will do everything to win, including gobbling up smaller pla­yers to build scale and size. Already, the ring has got concentrated to three or four players, including Amazon, Flipkart and Snapdeal where another global giant, eBay, has invested over `800 crore. One round of consolidation happened in 2013 when Snapdeal took over Shopo.in; Myntra, which was eventu­ally acquired by Flipkart, acquired Fitiquette; and Zovi, Inkfruit.

As we go forward, many of the single vertical e-retailers as well as cross-vertical players are expected to be on the sale block. Says Suchi Mukherjee, CEO and founder, LimeRoad.com, “The money inves­ted by Flipkart and Amazon shareholders will eventually wipe out ‘me-too’ smaller pla­yers and will help build-out the market for bigger players who offer the best platform experience.” But do Indian consumers have anything to complain in any of these developments? As long as the prices are lower and investors have faith in Flipkart’s long-term prospects, they’ll continue to gain. Until, that is, this David versus Goliath battle continues in India.

***

Don’t Flip That Kart Yet: Know Your E-TailerAll what you wanted to know about e-shopping in India

If you wish your letter to be considered for publication in the print magazine, we request you to use a proper name, with full postal address - you could still maintain your anonymity, but please desist from using unpublishable sobriquets and handles

Apropos Wholesale War in the E-Tail (Aug 11), it would be great for consumers—and the broader economy—if these battles are fought in the marketplace, with no one seeking to tilt the level playing field by seeking restrictive government policies, as happened so often in the past with FDI. On a lighter note, kyonki...Amazon bhi kabhi Flipkart tha!

Ashok Lal, Mumbai

Foreign players like Amazon should source locally. Already our market is flooded with cheap Chinese merchandise. Any FDI inflow should enable new job creation through adding capacity or starting greenfield projects. They should not desist from grabbing well-run Indian corporates.

N. Ramamurthy, Chennai

After Flipkart’s promoters found investors, they have def­e­­rred their plan to offer the company’s share through an ipo. We will have to wait a while before we can assess their comparative strengths. Their investments in infrastru­cture and aggressive marketing plans and strategy indicates that they are both confident of making money and are ready to fight for increasing their mar­­k­et­­­­share. This is welcome news for consumers. One only hopes these companies would help us get value-added products at competitive prices as well as assure us prompt after-sales service and not try to fleece us.

Narendra M. Apte, Pune

Online commerce giants have been good news for India so far. I have bought several books from them and find their service quick and efficient. It has been bad news for physical retailers, however, for whom huge rents and operating costs were always a burden, now it's sounding a death knell. Also, all this noise about stopping organised retail has been exposed as nonsense. All that this has done is let outdated supply chains exist and let them waste food. In fact, one reason they let grains rot in open godowns is that it gets our netas cheap raw material for their liquor factories.

Dinesh Kumar, Chandigarh

Very soon, old books is all you will find in book shops. The new books will sell only on Amazon. It can also continue to offer discounts because it has no running costs. Small stores will shut shop.

Shelly Rahman, London

Some of these online sites are like faceless creatures who appear, sting and vanish. I say this going by my experience with eBay India.

Rajneesh Batra, New Delhi

He who satisfies his custo­mer best—in terms of price, quality and service—will be king.

I read the story on Flipkart (Wholesale War in the Retail, Aug 11) with interest. Ever since I got to know Flipkart about five years ago, I have found them to be efficient, trustworthy and capable. Once I wanted to buy the South Asia Cyclopedia, to which I had contributed some entries. The publishers OUP said they couldn’t trace it. But Flipkart did, and delivered it to me at a discounted price. I found Amazon to be good too, but found Snapdeal to be a tad disappointing.

Thank you to all those who have taken the trouble to read the article and share their thoughts. Out of the arguments made here, there are two that perhaps need answering. So here they go.

1. The first part of the article compares outcomes (relative percentages of population of the religions concerned) irrespective of the process that led to those outcomes - whether immigration, relatively faster population growth or conversions. This was for two reasons. One, to put the figure of 2.3 per cent in "numerical perspective", as the article itself explained. The second reason was that outcomes are ultimately what the crux of debate is about. The rest of the article in any case dealt with process - or conversions in this case, from both a contemporary and historical perspective.

2. Some commenters have tried to cast doubts on the reliability of Census 2001. Those who do this should bear in mind that Census 2001 was conducted by a BJP government. Considering the extreme importance that BJP gives to this issue, it would be reasonable to expect that IF it had perceived a problem with the methodology that was distorting the numbers, it would have fixed it. As the article mentioned, BJP or BJP-supported governments have been in power for 10 of the last 40 years, or about a quarter of the time, and the only reasonable conclusion one can arrive at is that any misreporting of numbers, real or perceived, would be marginal and hence, not of importance.

To all other arguments made, my answer is the following: Please read the article again, with particular focus on the quotations of Vivekananda and Monier Williams, and the history of the missionary efforts in Bengal and their outcome.

Thanks and Regards,
Tony Joseph

20/D-58

Nov 19, 2014

03:14 PM

Indian market is growing on online shopping. There are so many websites which have created a customer's trust in online shopping. For new start up online shopping companies such as http://vogueme.in they have to understand customer need and taste.

Flipkart needs to lift its game if it has to compete with Amazon. Flipkart at the moment do not deliver items outside India where they can have far bigger market as compared to India. They will have to match service standards of Amazon. At the meoment they are nowhere near them. Flipkart has to improve it's return policy.They have no policy for items lost in transit. I still remember the incident where I ordered 4 books but I received only three. Flipkart refused to deliver the lost book because according to them the order was complete. It was extremely rude. If Amazon comes to India I will use Amazon because of their service standards.

e-tailing is a very interesting phenomenon and it is very difficult to predict how it will change the business retailing. Even in the developed world etailing is a work in progress. While brick and morter retailers are building their online offerings to compete with pure etailers, the etailers are investing more on physical infrastructure to improve customer service.

Digital shopping certainly has not made physical shopping obsolete in the US, although growth of physical retailing industry is affected by etailing. But note that in spite of doomsday predictions of etailers killing physical retailers for many years now, in reality the physical retailers are still very much in competition, and their online offerings instead of cannibalizing their physical offers are actually boosting their revenues.

In India it is important to allow FDI in both offline and online retail to expand the retail industry and make it more efficient becase of competition. Expansion of shopping mallls in cities did not kill traditional retail storess, although competition forced many of the the traditional outfits to be more customer friendly and tech savvy. Several Indian owned retailers have introduced stores and retail formats that add to convenience of shoppers. Even traditional sellers of kurtas and sarees are advertizing on local TV channels and online. Indian consumers today have the choice of buying cheaper groceries from the traditional vegetable markets and paying more for buying groceries at a more comfortable retail outlet. That's how markets expand and everybody benefits.

It is quite foolish to predict and sneer at the fate of etailers looking at the number of PC based internet connections today in India. Future is very different from the present. Today's tech savvy Indians cannot believe how the left in 1980s fought introduction of computers in offices fearing job losses. The TV addicted Indian nation cannot imagine that the government was criticized for introducing color TV in a poor country in 1980s. When cellphones were introduced as luxury items ( the calls used to cost Rs. 16/minute in late 1990s), people complained why India was introducing cellphones instead of shifting focus on improving the pathetic status of landlines. Today even the poor in India own cellphones thanks to the earlier push. As smartphones are getting cheaper, soon more Indians will have access to smartphones and mobile internet irrespective of lower penetration of PCs and PC based internet. Mobile internet apps and mobile payments will drive online sales. That explains why investors are excited about Flipkart and why Amazon is pumping more money in India. Cynics will realize that in due course.

Very soon you will find only old books in the shops. For new books, Amazon will do the job. Amazon will sell the books with discount even as they have no running cost. manu small shopw will shut their doors.

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